New Pensions Protection Fund
June 12 2003 - New measures have been announced by
Secretary of State for Work and Pensions, Andrew Smith aimed at
protecting members of pension schemes and making
it easier for companies to run the schemes.
Following the consultation on the Pensions Green Paper, Andrew Smith said:
"We have listened to the pension scheme members, employers and the
pensions industry - and it is now time for action.
"This balanced package strengthens protection for scheme members
whilst reducing the burden on companies who run schemes. The new
Pension Protection Fund will ensure that where company pensions have
been promised, pensions will be delivered. I want to end the scandal
of workers being denied the pensions they have built up over many
years, or pensioners seeing their pension cut if their firm goes bust
and their scheme winds up."
The new measures include:
* Pensions Protection Fund - first ever protection scheme for
Defined Benefit pensions in the UK, protecting pension rights accrued
when a company goes bust.
* Full Buy Out - ensuring that where a solvent company chooses to
wind up its scheme it should fully buy out members' benefits.
* New Pensions Regulator - with new activity targeted on badly run
and high-risk schemes putting consumers first and ensuring secure
schemes continue without unnecessary regulatory burden.
* Changes to the Priority Order - guarantees remaining assets of a
scheme in wind-up are distributed fairly among the workforce
reflecting the length of service of employees.
The package is also aimed at radically simplifying
pensions legislation and reducing costs on pension schemes through:
- a new scheme-specific funding requirement;
- changes to the contracting out regime;
- a reduction in the compulsory indexation introduced in 1997.
The government calculates that, overall, these proposals could save business up to £155 million.
Andrew Smith added:
"We want to make it easier for people to save and easier for
companies to run good pensions schemes. I've taken a hard look at all
the proposals made following the Green Paper and struck a balance
between reducing costs on schemes while also providing new protection
for people who work hard to build up pension rights.
"All partners must now rise to the challenge and work together to
build pension provision in the UK."
Commenting on the government's pension proposals, Brendan Barber,
TUC General Secretary, said:
"The TUC welcome the proposed introduction of a pension protection fund
(PPF) to guarantee members a specified minimum level of pension if their employer becomes
insolvent. We have been campaigning for a PPF for many years.
"The requirement on solvent employers who choose to wind up their pension
schemes to meet their pension promise in full is an important move for members of
occupational pensions, and will help to restore the pension promise made by employers.
Previously employers who walked away from their commitment left scheme members high and
"Whilst we recognise the need for a balanced package in a voluntary
environment we are disappointed that the government has chosen to allow employers to
cut inflation proofing for scheme members. This could result in workers in retirement
seeing the value of their pension reduce significantly if we return to a period of high
inflation. The need for compulsory contributions to pensions becomes more evident as we
see the government trying to juggle with the voluntary approach. Long awaited pensions
protections should not be paid for by reductions in benefits - we need more money in the
"We are strongly opposed to any increase in public service pension
schemes' retirement age from 60 to 65.
"We recognise that Section 67, which protects scheme members from any
retrospective changes to their accrued pension rights is extremely restrictive, but
believe that any relaxation would have to involve extensive consultation and negotiation
with scheme members. We do not support the view that an employer should be able
unilaterally to alter an accrued pension. There are already rules in place, which
allow trustees to seek member's consent. We would welcome further discussions with
government on any simplification of the arrangements under which schemes are restricted
from modifying accrued rights."